Archive for the 'Building A Better Audit' Tag Under 'OC Watchdog' Category

San Bernardino officials -- from city hall to law enforcement -- are distancing themselves from City Attorney James Penman's statements last week that financial documents had been falsified in at least 13 of the last 16 years, making it appear the city was in rosier condition.

As San Bernardino headed toward bankruptcy, Penman alluded to investigations by the police department as well as the San Bernardino County Sheriff's Department and the District Attorney's Office. But Sheriff Rod Hoops told the Riverside Press-Enterprisethat the multi-agency investigation was not related to the pending bankruptcy. City officials surmised that the probe centered on alleged bid-rigging by two employees.

Gwendolyn Waters, acting assistant city manager and a police captain, told the Watchdog that she didn't believe authorities were looking at budget-related crimes. Sure, accounting errors had been made, numbers transposed, but nothing sinister, she said.

That's a question we've been pondering lately in our "building a better audit" series. In Bell, the city manager was pulling in more than $800,000 a year, the city was giving dubious loans to insiders and slapping locals with illegal taxes, but Irvine-based outside auditor Mayer Hoffman McCann passed it with flying colors. Repeatedly.

So there was this nasty fight in Yorba Linda, where the city council accused the city manager of doling out $600,000 in unapproved bonuses to himself and others (which erupted in lawsuits and name-calling and ended in a pricey settlement).

And it hadn't been long since Bob Citron's bad investments led Orange County into a $1.64 billion bankruptcy, either.

Laguna Niguel city councilmembers sought to heed these cautionary tales, and dig a little deeper into how staffers were handling public money. It was hard not to be defensive at first, City Manager Tim Casey confessed -- but what evolved in the little city of Laguna Niguel helps keep city staffers on their financial toes, and can be instructional for others:

You earn what? Each year since 2001, the city's independent auditors pick up the personnel files of the city manager and top city brass. Auditors then compare payroll records -- what the employees were actually paid -- to city council resolutions on what those employees should have been pai

The eggheads who pore over the ledgers of Orange County's cities and special districts are paid more than $1 million every year to poke around the public money pots, and issue what almost always are squeaky-clean bills of fiscal health.

Welcome, friends, to the tangled tale of the annual municipal audit. Despite the cost -- about $20,000 a pop, per agency, per year -- the outside experts hired to do these audits can miss some very, very big things:

Remember the Orange County bankruptcy? "Oops, what do you mean investment earnings shouldn't comprise more than 5 percent of the county budget? There's something wrong with pulling in 35 percent?!" (The county sued auditor KPMG Peat Marwick for failing to detect and warn of the risks posed by Bob Citron's investments strategies, which culminated in what was then the nation's biggest municipal bankruptcy. KPMG eventually settled with the county for $61.4 million.)

Remember Bell? The city manager was pulling in more than $800,000 a year, the city was giving dubious loans to insiders and slapping locals with illegal taxes, but Irvine-based outside auditor Mayer Hoffman McCann passed it with flying colors. (The state concluded that Mayer Hoffman “appears to have been a rubberstamp rather than a responsible auditor committed to providing the public with the transparency and accountability that could have prevented the mismanagement of the City's finances by Bell officials.” Mayer Hoffman heartily disagreed: The firm was subjected to massive fraud by city officials, it said.)